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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-19690
BARRA, INC.
(Exact name of registrant as specified in its charter)
California 94-2993326
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Milvia Street
Berkeley, California 94704-1113
(Address, including zip code, of principal executive offices)
(510) 548-5442
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's Common Stock outstanding as of
September 30, 1998 was 13,879,898.
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and as of March 31, 1998
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended September 30, 1998 and 1997
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
BARRA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $17,058,650 $33,673,314
Short-term investments........................... 15,317,835 8,294,394
Investment in municipal debt securities-
available for sale.............................. 6,391,664 6,265,204
Accounts receivable:
Subscription and other (Less allowance for
doubtful accounts of $152,733 and $169,183)... 22,977,511 18,152,071
Asset Management............................... 7,206,494 2,449,324
Related parties................................ 5,371,259 3,855,057
Prepaid expenses................................. 1,782,846 1,965,819
------------- -------------
Total current assets........................... 76,106,259 74,655,183
------------- -------------
Investments in unconsolidated companies............ 2,625,456 2,128,532
Premises and equipment:
Computer and office equipment.................... 18,675,941 16,447,653
Furniture and fixtures........................... 5,585,130 5,006,947
Leasehold improvements........................... 8,296,035 6,677,300
------------- -------------
Total premises and equipment................... 32,557,106 28,131,900
Less accumulated depreciation and amortization..... (15,898,494) (13,513,701)
------------- -------------
16,658,612 14,618,199
Deferred tax assets................................ 2,282,522 2,282,522
Computer software (less accumulated amortization
of $1,484,065 and $1,051,275).................... 1,625,406 1,544,704
Other assets....................................... 1,315,458 1,463,824
Goodwill and other intangibles (less accumulated
amortization of $4,339,962 and $3,215,801)....... 28,935,719 24,767,142
------------- -------------
Total.............................................. $129,549,432 $121,460,106
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $1,655,826 $2,223,129
Due to related party............................. 1,374,972 1,079,199
Accrued expenses payable:
Accrued compensation........................... 4,739,642 9,663,688
Accrued corporate income taxes................. 4,939,621 4,884,113
Other accrued expenses......................... 8,044,623 7,211,705
Unearned revenues................................ 23,548,489 22,160,710
------------- -------------
Total current liabilities...................... 44,303,173 47,222,544
------------- -------------
Deferred tax liabilities........................... 1,573,500 1,486,362
Minority interest in equity of subsidiary.......... 2,435,780 2,000,217
STOCKHOLDERS' EQUITY:
Preferred stock, no par; 10,000,000 shares
authorized; none issued and outstanding......... -- --
Common stock, $.0001 par value; 75,000,000
shares authorized; 13,879,898 and 13,675,388
shares issued and outstanding................... 1,388 1,368
Additional paid-in capital....................... 29,113,293 27,829,967
Retained earnings................................ 53,078,447 43,875,659
Foreign currency translation adjustment.......... (956,149) (956,011)
------------- -------------
Total stockholders' equity..................... 81,236,979 70,750,983
------------- -------------
Total.............................................. $129,549,432 $121,460,106
============= =============
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE and SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Subscription and consulting
fees....................... $28,237,994 $23,691,131 $55,028,387 $44,809,455
Electronic brokerage......... 4,518,551 2,368,129 8,285,815 4,949,034
Asset management............. 6,270,069 5,174,933 11,625,560 8,582,166
------------ ------------ ------------ ------------
Total operating revenues... 39,026,614 31,234,193 74,939,762 58,340,655
------------ ------------ ------------ ------------
Operating Expenses:
Cost of subscription products 2,328,283 1,611,046 4,959,130 3,326,267
Compensation and benefits.... 18,998,244 15,192,724 35,747,018 28,151,224
Rent expense................. 1,883,368 1,418,554 3,622,162 2,550,182
Other operating expenses..... 6,308,254 6,055,365 12,650,195 10,808,132
One-time acquisition charges. -- -- -- 9,914,000
------------ ------------ ------------ ------------
Total operating expenses... 29,518,149 24,277,689 56,978,505 54,749,805
------------ ------------ ------------ ------------
Interest Income & Other........ 229,841 616,369 802,676 1,071,439
------------ ------------ ------------ ------------
Income before Equity
in Net Income and Loss of
Investees, Minority Interest
and Income Taxes............. 9,738,306 7,572,873 18,763,933 4,662,289
Equity in Net Income and Loss
of Investees................. (116,800) (45,806) (366,946) (24,118)
Minority Interest.............. (1,955,137) (1,193,531) (3,310,964) (1,782,768)
------------ ------------ ------------ ------------
Income before Income
Taxes........................ 7,666,369 6,333,536 15,086,023 2,855,403
Income Taxes................... (2,989,884) (2,660,085) (5,883,235) (5,443,959)
------------ ------------ ------------ ------------
Net Income (Loss).............. $4,676,485 $3,673,451 $9,202,788 ($2,588,556)
============ ============ ============ ============
Net Income (Loss) Per Share:
Basic........................ $0.34 $0.27 $0.67 ($0.20)
============ ============ ============ ============
Diluted...................... $0.32 $0.25 $0.63 ($0.20)
============ ============ ============ ============
Weighted Average Common and
Common Equivalent Shares:
Basic........................ 13,821,724 13,402,542 13,784,447 13,055,971
============ ============ ============ ============
Diluted...................... 14,568,491 14,406,827 14,569,809 13,055,971
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)................................. $9,202,788 ($2,588,556)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Equity in net income and loss of investees... 366,946 24,118
Minority interest............................ 3,310,964 1,782,768
Depreciation and amortization................ 3,550,314 2,044,082
Gains on marketable securities............... (250,000) (150,000)
One-time acquisition charges................. -- 9,914,000
Other........................................ 87,000 (305,513)
Changes in:
Accounts receivable - subscription and other. (4,825,440) (5,026,171)
Accounts receivable - asset management....... (4,757,170) (1,791,889)
Accounts receivable - related parties........ (1,516,202) 3,147,098
Prepaid expenses............................. 182,973 (474,956)
Other assets................................. 148,366 (911,909)
Accounts payable, due to related party
and accrued expenses........................ (4,549,457) (5,167,558)
Unearned revenues............................ 1,322,779 3,761,985
------------- -------------
Net cash provided by operating activities......... 2,273,861 4,257,499
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (4,418,975) (5,657,498)
Short-term investments - net...................... (6,773,441) (1,270,569)
Investment in municipal debt securities -
available for sale.............................. (126,460) (7,267,254)
Acquisitions - cash paid.......................... (5,356,031) (1,713,529)
Investments in unconsolidated companies........... (621,563) (1,803,559)
Repayments on note receivable..................... -- 2,105,836
------------- -------------
Net cash used in investing activities (17,296,470) (15,606,573)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to minority shareholders................. (2,875,401) (2,213,828)
Repayments on notes payable and lines of credit... -- (713,022)
Proceeds from sale of common stock................ 1,283,346 816,323
------------- -------------
Net cash used in financing activities............. (1,592,055) (2,110,527)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS......... (16,614,664) (13,459,601)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 33,673,314 25,831,118
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $17,058,650 $12,371,517
============= =============
OTHER CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense............................. $7,615 $29,264
Income taxes................................. $5,827,727 $3,878,925
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of BARRA, Inc. (the "Company" or "BARRA") and its wholly-
owned subsidiaries. Also included in the accompanying
consolidated financial statements are the accounts of, 1) Bond
Express, L.P. ("Bond Express"), in which the Company determined
it had controlling financial interest beginning June 1, 1996; and,
2) Symphony Asset Management, LLC ("Symphony LLC"), a 50%-owned
joint venture. All significant intercompany transactions and
balances have been eliminated. Certain reclassifications have
been made to prior year financial statements to conform to the
current year presentation.
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments
(consisting of normal recurring entries) necessary to present
fairly the financial position of BARRA as of September 30, 1998
and the results of its operations and cash flows for the periods
presented in conformity with generally accepted accounting
principles. The results of operations for the interim periods are
not necessarily indicative of results of operations for a full
year. The March 31, 1998 consolidated balance sheet is derived
from the audited consolidated financial statements included in
BARRA's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, filed with the Securities and Exchange Commission
on June 25, 1998 (the "Form 10-K"), but does not include all
disclosures required by generally accepted accounting principles.
It is suggested that these consolidated financial statements be
read in conjunction with the audited consolidated financial
statements and related notes included in the Form 10-K and
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this Form 10-Q.
2. BUSINESS COMBINATIONS
On June 17, 1998, the Company completed the acquisition of
substantially all of the assets and assumption of certain
liabilities of Redpoint Software, Inc. ("Redpoint"). Redpoint
is a leading provider of integrated risk management solutions and
enterprise-wide data management systems. The purchase price was
$5.5 million in cash and up to an additional $12.5 million over a
period of two years following the closing based upon the financial
performance of the acquired assets.
The acquisition has been accounted for as a purchase and the cost
of the acquisition has been allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed
and resulted in goodwill of approximately $5.5 million which is
being amortized over 10 years. Under the purchase method of
accounting, results of operations from acquired businesses are
included in the financial statements of the acquiring company from
the date of acquisition only. Comparative pro forma financial
information has not been presented as the results of operations of
Redpoint were not material to the Company's consolidated financial
statements.
3. PER SHARE DATA
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" ("SFAS 128"), basic
earnings per share is based on the weighted-average number of
common shares outstanding for the period. Diluted earnings per
share data is based on the weighted-average number of common and
dilutive potential common shares outstanding. Dilutive potential
common shares result from the assumed exercise of outstanding
stock options that have a dilutive effect when applying the
treasury stock method. For all periods presented, the only
difference between basic and diluted earnings per share for the
Company is the inclusion of dilutive stock options in the
denominator for purposes of calculating diluted earnings per
share. All prior period per share data has been restated to
conform to the provisions of SFAS 128 subsequent to its adoption
by the Company in the quarter ended December 31, 1997.
4. REINCORPORATION
Effective August 14, 1998, the Company changed its state of
incorporation from California to Delaware. The reincorporation was
accomplished through a merger (the "Merger") of BARRA, Inc., a
California corporation ("BARRA California"), into its wholly
owned Delaware subsidiary, BARRA (DE), Inc. ("BARRA Delaware").
Upon the Merger, BARRA Delaware changed its name to BARRA, Inc.
As a result of the Merger, each outstanding share of BARRA
California Common Stock, no par value, was automatically converted
into one share of BARRA Delaware Common Stock, par value $.0001
per share. Accordingly, prior period common stock amounts have
been reclassified to reflect the $.0001 par value of Common Stock
issued and outstanding. Also in connection with the
reincorporation, the Company increased the authorized number of
shares of Common Stock from 40,000,000 to 75,000,000.
5. RECLASSIFICATION
Revenues from bond offering services provided by Bond Express,
L.P. of $384,539 and $761,737 for the three and six months ended
September 30, 1997, respectively, have been reclassified on the
accompanying Consolidated Statement of Operations from
"Electronic Brokerage" to "Subscription and Consulting" to
conform with the current period presentation.
6. NEW ACCOUNTING STANDARDS
Comprehensive Income
Beginning with its 1999 fiscal year, the Company adopted SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive
income and its components. In accordance with SFAS 130, the
Company has set forth in the table below the components of "Other
Comprehensive Income" and "Comprehensive Income":
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income (Loss)............ $4,676,485 $3,673,451 $9,202,788 ($2,588,556)
Other Comprehensive income
(loss):
Change in foreign
currency translation
adjustment during period.. (125,414) (192,954) (138) 95,770
------------ ------------ ------------ ------------
Comprehensive income (loss).. $4,551,071 $3,480,497 $9,202,650 ($2,492,786)
============ ============ ============ ============
</TABLE>
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes
standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial
statements and selected segment information in interim financial
reports. Although SFAS No. 131 need not be applied to interim
financial statements in the initial year of application,
comparative information for interim periods of fiscal 1999 will be
reported in the Company's interim financial statements in fiscal
2000. Further, all comparative information for prior periods will
be restated to conform to the provisions of SFAS 131. Application
of the disclosure requirements of SFAS 131 will have no impact on
the Company's consolidated financial position, results of
operations or earnings per share data as currently reported.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis should be read in
conjunction with the BARRA, Inc. ("BARRA" or the "Company")
unaudited financial statements and related notes presented in this
Form 10-Q. The discussion of results, causes or trends should not
be construed to imply that such results, causes or trends will
necessarily continue in the future. Each statement made in this
discussion and analysis and elsewhere in this report containing
any future verb tense or form of the words "anticipate",
"estimate", "expect", "designed", "believe", "future",
"forecasts", "intends", "perceives", "possible",
"potential", "targeted", "may", "plan or "plans",
"scheduled", "would", "could", "should", or "forward" or
similar expression is a forward-looking statement that may involve
a number of risk factors and uncertainties. The Company does not
undertake to update, revise or correct any of the forward-looking
information. Among other factors that could cause actual results
to differ materially are the following: business conditions and
other changes in the Company's industry; competitive factors such
as rival products and price pressures both domestically and
internationally; availability of adequate third-party data on
reasonable terms and at reasonable prices; significant delays or
excessive costs associated with product research, development
and/or introduction; the loss of a large single revenue source;
the investment performance and the timing of performance fee
determination dates for the Company's asset management subsidiary;
significant changes in trading volumes on the POSIT trading
system; the ability of software, data and other systems to
accommodate date changes after December 31, 1999 (as further
discussed below in this section under "General- Year 2000"); the
adoption of the Euro Currency (as further discussed below in this
section under "General - European Monetary Union ("EMU")");
and fluctuations in U.S. dollar exchange rates for non-U.S.
currencies. Further information and potential risk factors that
could affect the Company's financial results are included
throughout this Form 10-Q and in the Company's Form 10-K for the
fiscal year ended March 31, 1998.
A. GENERAL
Certain of the information required by this item has been
previously reported under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
Form 10-K.
Redpoint Acquisition
As discussed in Note 2 to the financial statements, on June 17,
1998 the Company completed the acquisition of substantially all of
the assets and assumption of certain liabilities of Redpoint. The
purchase price was for $5.5 million in cash and up to an
additional $12.5 million over a period of two years following the
closing based upon the financial performance of the acquired
assets. The acquisition has been accounted for as a purchase and
the cost of the acquisition has been allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed
and resulted in goodwill of approximately $5.5 million which is
being amortized over 10 years.
Year 2000
The Year 2000 issue, also known as the "millennium bug" or the
"Y2K" problem, refers to the inability of many computer systems
and other equipment with computer chips to accurately process
dates in the Year 2000 and beyond. This occurs because many
software programs have been coded using a six-digit date format
(MM/DD/YY) that identifies a year as a two-digit field rather than
a four-digit field. As a result, on January 1, 2000, any clock or
date recording mechanism, including date-sensitive software, that
uses only two digits to represent a year may recognize a two digit
date (e.g. "00") as referring to "1900" rather than "2000,"
which could in turn result in system failure or miscalculations.
As used below, the term "Y2K compliant" means that the product
or system referred to has file structures and naming conventions
that accommodate a date transition to the next century without
performance interruption.
The following discussion of the Y2K Project (as defined below),
including but not limited to cost estimates and estimates about
the Y2K Project phases (including completion percentages and
target deadlines within each phase) are based upon management
estimates that are derived utilizing numerous assumptions of
future events. Such estimates are subject to uncertainties that
could cause actual results to differ materially from such
estimates. There can be no guarantee that any such estimates will
be achieved, or that there will not be a delay in, or increased
costs associated with, the implementation of the Y2K Project.
Factors that could influence such estimates or cause them to
differ from actual results include, but are not limited to: the
success and timeliness of the Company in identifying all relevant
software code, the nature and amount of programming required to
upgrade or replace affected software, the timely responses to and
corrections by third parties, the ability to implement interfaces
between any new systems and those systems not being replaced, the
rate and magnitude of labor and consulting costs associated with
the Y2K Project, the availability and cost of personnel for the
Y2K Project and other resources and the success, timeliness of the
Company's vendors and other third parties with whom the Company
has business relationships in addressing the Y2K problem, and
other uncertainties. Due to the general uncertainty inherent in
the Y2K problem, resulting in part from the uncertainty of the
Year 2000 readiness of external parties and the interdependence of
global businesses, the Company cannot make any assurances
regarding its ability to timely and cost-effectively resolve
problems associated with the Year 2000 issue that may affect its
results of operations, liquidity and financial condition, or
expose it to third party liability.
State of Readiness. The Company must address the potential
effects of the Y2K problem on its core institutional analytics and
other products and services that consist of software applications
and proprietary databases. In addition, the Company's other
systems, including its internal hardware and software systems as
well as embedded systems contained in its non-information
technology systems, must be separately addressed. Accordingly,
the discussion below describes the Company's Year 2000 efforts
with respect to its products and services as well as its other
systems. As used below, the term "BARRA Products" refers to the
Company's software applications that allow users to access the
Company's risk, valuation and other proprietary models and
databases, but excludes the Company's proprietary data update
processes as well as third party technology, joint venture
technology and data embedded in such BARRA Products. "DUPs"
refers to the Company's internal proprietary systems that update
the data processed through the BARRA Products. "BARRA Services"
refers to the consulting services offered by the Company's
Analytics Consulting group, BARRA RogersCasey, Inc. and BARRA
Strategic Consulting Group, Inc. as well as the asset management
services provided through BARRA RogersCasey Asset Services Group,
Inc., but excludes asset management and other services provided by
various partnerships and joint ventures in which the Company
participates but is not the principal operator.
In 1997, the Company assembled a Year 2000 project team comprised
of internal and outside professionals to review and identify areas
that may be adversely affected by Y2K problems. The project team
has formulated a Year 2000 project plan to achieve the objectives
of (i) testing substantially all BARRA Products and BARRA Services
that the Company anticipates selling and supporting as of January
1, 2000 for Y2K compliance by March 31, 1999 and (ii) testing
BARRA's other systems for Y2K compliance by the end of September
1999 (the "Y2K Project"). The scope of the Y2K Project covers
the BARRA Products, DUPs, BARRA Services and third party and joint
venture products and other systems (including hardware, software,
embedded systems and other products supporting the Company's
infrastructure).
The Company has adopted seven phases for the Y2K Project as it
relates to those BARRA Products, DUPs and BARRA Services that the
Company anticipates selling and supporting as of January 1, 2000,
as described in the table below. The percentages and target
deadlines are based upon estimates at October 31, 1998 of the
total number of labor hours, including internal and outside
personnel, required for completion of each phase:
<TABLE>
<CAPTION>
Status as of October 31, 1998: Approximate
Phase Objective Percentage Complete (Target Deadline)
- ------------ -------------------------------------- ------------------------------------------------
<S> <C> <C>
Awareness Make each department aware of the Y2K Complete for BARRA Products, DUPs and BARRA
problem, and convey management's Services.
commitment to BARRA's Y2K compliance
efforts to all departments.
Inventory Create comprehensive lists of each BARRA Products: Complete
BARRA Product, DUP and BARRA Service. DUPs: 75% (December 31, 1998)
BARRA Services: 50% (December 31, 1998)
Assessment Assess the inventoried BARRA BARRA Products: 85% (January 31, 1999 for IDP
Products, DUPs and BARRA Services to products1; complete for other BARRA Products)
determine what modifications or DUPs: 10% (January 31, 1999)
enhancements are needed, if any. BARRA Services: 40% (January 31, 1999)
Solution Plan the activities, develop the BARRA Products: 65% (February 28, 1999 for IDP
Design and schedule and estimate the costs of products1; November 30, 1998 for other BARRA
Planning Year 2000 modifications. In Products)
addition, establish basic management DUPs: 5% (February 28, 1999)
and development processes, along with BARRA Services: 80% (February 28, 1999)
general standards and verification
techniques applicable to the Y2K
compliance tasks.
Development Execute the plans developed to BARRA Products: 70% (February 28, 1999)
and achieve Y2K compliance. DUPs: less than 5% (April 30, 1999)
Modification BARRA Services: 80% (March 31, 1999)
Testing Test and verify Y2K compliance. BARRA Products: 45% (March 31, 1999)
DUPs: 5% (July 31, 1999)
BARRA Services: phase not begun (April 30,
1999)
Distribution Deliver Y2K compliant BARRA Products BARRA Products: phase not begun (April 15, 1999)
and BARRA Services to clients. DUPs: phase not applicable to DUPs
BARRA Services: phase not begun (May 31, 1999)
</TABLE>
1 IDP products are produced by the Company's Investment Data Products business
unit, which develops and markets a variety of proprietary databases along
with electronic screening and analysis products to be used with the data.
Through September 30, 1998, revenues from sales of IDP products represented
approximately 6% of the Company's total operating revenues for fiscal year
1999.
While the Company's testing methodology varies depending upon the
relevant testing requirements, the Company generally tests for Y2K
compliance by performing each BARRA Product, DUP and BARRA Service
from the end user's perspective using various Year 2000 dates. In
addition, the Company intends to have independent parties audit
the Y2K compliance of certain of its more significant BARRA
Products.
The seven phases described above cover only those BARRA Products
that the Company anticipates selling and supporting as of January
1, 2000. The Company intends to deliver Y2K compliant versions of
such BARRA Products via regular maintenance services provided to
its client base. Decisions to discontinue other BARRA Products
prior to the Year 2000 will be made in the ordinary course of
business and are not expected to be based solely upon Year 2000
issues. The Company currently expects that all discontinued BARRA
Products will be replaced with more advanced software applications
which are Y2K compliant prior to the Year 2000. BARRA Products
scheduled to be discontinued for which full replacements are not
currently available represent approximately 2% of the total
estimated annual operating revenues for fiscal year 1999.
The Y2K Project includes the process of identifying and
prioritizing critical vendors, and communicating with them about
their plans and progress in addressing the Y2K problem.
Accordingly, the Company has delivered questionnaires to each of
its vendors that currently provides data for the BARRA Products,
DUPs and BARRA Services in order to assess their Y2K compliance
efforts and the Company's related exposure. Approximately 80% of
such vendors had responded to such questionnaires at September 30,
1998. Most responses include statements that the data delivered
to the Company is currently, or will be prior to the Year 2000,
delivered in a format that is Y2K compliant. In instances where a
vendor's response indicates that its data is not currently
delivered in a Y2K compliant format, the Company has requested
that test data be made available when such vendor's data is
rendered Y2K compliant. While there can be no assurance regarding
the availability of any such test data, the Company expects that
most vendors will make such test data available by early 1999. In
addition, substantially all of the data received from such vendors
is indirectly tested by the Company for Y2K compliance as part of
the Company's Y2K compliance testing of BARRA Products, DUPs and
BARRA Services. Because no single purchaser of BARRA Products or
BARRA Services accounts for more than 2% of the Company's revenues
at September 30, 1998, the Company currently intends to review the
Y2K compliance of only its twenty largest customers by March 31,
1999.
The Y2K Project includes some review of the asset management
businesses of Symphony Asset Management, Inc., the Company's
wholly owned subsidiary ("Symphony Inc."), and Symphony Inc.'s
50% owned subsidiary, Symphony LLC, as well as the Portfolio
System for Institutional Trading ("POSIT"). Because the Company
is not the principal operator of Symphony LLC and POSIT, the
Company is only indirectly involved in reviewing these businesses
for Y2K compliance. Based on information available to the
Company, as of October 31, 1998, the approximate completion
percentages (and target deadlines) with respect to these
businesses were as follows: Awareness: 100%; Inventory: 15%
(January 31, 1999); Assessment: 35% (February 28, 1999); Solution
Design and Planning: 30% (June 30, 1999); Development and
Modification: 55% (August 31, 1999); Testing: less than 5%
(September 30, 1999). The Distribution phase is inapplicable to
these businesses. The Y2K Project does not cover the businesses
of other various partnerships and joint ventures in which the
Company participates but is not the principal operator.
With respect to the Company's other systems, the Company is
substantially dependent upon outside vendors for its internal
hardware (such as computer equipment and phone systems), software
(such as operating systems, software supporting BARRA Products,
DUPs and BARRA Services, software for its payroll, accounting and
other support systems) and other systems, including non-
information technology microcontrollers embedded in equipment and
machinery (such as elevators). The Company intends to distribute
questionnaires to each of its existing vendors whose products or
services support its other systems in order to assess their Y2K
compliance efforts and the Company's related exposure. The
Company currently estimates that it will complete assessment and
remediation of any Y2K compliance problems identified by the
responses to such questionnaires by September 30, 1999. However,
the Company's Y2K efforts relating to its other systems will
continue indefinitely to the extent that the Company acquires new
components for, or makes modifications or improvements to, its
existing internal systems. The Company expects to replace those
components which are not identified as Y2K compliant with
compliant versions from either the same or alternate vendors. As
the Y2K Project is currently focused on the BARRA Products, DUPs
and BARRA Services, the Company does not expect to distribute any
questionnaires to its vendors supporting its other systems until
early 1999.
In addition to infrastructure-related software and systems
supported by outside sources, the Y2K Project includes an analysis
of Delphi, the Company's internally developed software used to
track its client contacts and manage its orders and invoices,
client support and distribution systems. Delphi also interfaces
with other systems such as accounting and BARRAlink data delivery
systems. As of October 31, 1998, Delphi's Y2K compliance was in
the testing phase. The testing methodology includes reviewing
Delphi's software design and code. The Company expects to
complete testing of Delphi by December 31, 1998.
Costs. The estimated total cost of the Y2K Project is
approximately $5.4 million, which includes the fees paid to
outside solution providers, the costs of repairing or replacing
software and hardware, the costs of identifying and communicating
with data vendors and the costs associated with the Company's
internal labor expenses. The total amount expended on the Y2K
Project through the three months and six months ending September
30, 1998 was approximately $450,000 and $750,000, respectively, of
which approximately $170,000 and $280,000, respectively, consist
of costs associated with the Company's internal labor expenses.
The Company had not incurred costs for the Y2K Project prior to
September 30, 1997. Of the total amount expended on the Y2K
Project to date, approximately $75,000 related to capitalized
equipment. The estimated future cost of completing the Y2K
Project is approximately $4.6 million, of which approximately $1.5
million relates to the Company's internal labor expenses.
Internal labor costs include the salaries of those employees other
than senior management who devote a portion of their time to the
Y2K Project. The foregoing costs include those costs incurred by
the Company in connection with its review of the Y2K compliance of
Symphony, Inc., Symphony LLC and POSIT, but exclude the Company's
potential share of costs that may be incurred by other various
partnerships and joint ventures in which the Company participates
but is not the principal operator. Costs of the Y2K Project are
expensed by the Company during the period in which they are
incurred. Funds for the Y2K Project are provided from the
Company's available cash resources, including cash provided from
operations and short-term investments. The Company does not
expect funds necessary for completion of the Y2K Project to be in
excess of such available cash resources.
Risks. The failure to correct a material Y2K problem could result
in an interruption in, or a failure of, certain normal business
activities, operations or systems. Such failures could materially
and adversely affect the Company's results of operations,
liquidity and financial condition. The Company's data vendors,
for example, may be unable to provide timely and accurate data as
a result of the Y2K problem. Since the underlying financial data
received from such vendors fuel BARRA Products and BARRA Services,
any inability to receive accurate data, as well as timely data
updates, could significantly undermine the quality of the
Company's risk, valuation and other proprietary models and
databases, as well as the quality and timely delivery of the BARRA
Products and BARRA Services. Because the Company derives
significant revenue from licenses for its software applications,
the Company generally faces additional risks of product disruption
and potential liability not applicable to non-software providers.
In addition, the BARRA Products scheduled to be discontinued for
which full replacements are not currently available represent
approximately 2% of the estimated total annual operating revenues
for fiscal year 1999. To the extent that customers receiving the
discontinued BARRA Products elect not to await their replacements
and instead terminate their subscriptions, the Company will lose
the revenues associated with such subscriptions.
Due to the general uncertainty inherent in the Y2K problem,
resulting in part from the uncertainty of the Year 2000 readiness
of vendors and other third parties (including joint venture
partners) with whom the Company has business relationships, the
Company is unable to determine at this time whether the
consequences of the Y2K problem will have a material impact on the
Company's results of operations, liquidity or financial condition.
The Y2K Project is expected to significantly reduce the Company's
level of uncertainty about the Y2K problem and, in particular,
about the compliance and readiness of its material third parties
with whom the Company has business relationships. The Company
believes that, assuming the successful completion of the Y2K
Project as currently scheduled, the possibility of significant
interruptions of normal operations should be reduced.
Contingency Plans. The Company's Y2K project team is continuing
to develop contingency plans in the event that Y2K problems arise
despite the Company's compliance efforts. In particular, the
Company intends to identify potential replacements for vendors
supporting certain of its BARRA Products, DUPs and BARRA Services
and expects to continue identifying such replacements throughout
1999. In addition, in the event that automated data updates
supporting the Company's and Symphony LLC's asset management
services fail as a result of Y2K non-compliance, the Company's
employees may execute the updates manually, to the extent
available. In the event that the products and services of vendors
supporting the Company's other systems are not Y2K compliant, the
Company intends to replace such products and services through
upgrades or replacements. There is no assurance, however, that
any potential replacements of vendors supporting BARRA Products,
DUPs, BARRA Services or other systems will be available, that
their products and services will be Y2K compliant or that the
Company will be able to quickly incorporate such products and
services into its own businesses.
As a result of their status as a registered investment adviser or
broker-dealer, certain of the Company's subsidiaries and
affiliates are subject to specific reporting requirements
promulgated by the Securities and Exchange Commission and must
file publicly available Year 2000 reports. Additional information
regarding the Company's Y2K compliance efforts may be found in
such reports.
European Monetary Union ("EMU")
Potential problems could also arise when the EMU replaces certain
European currencies with the "Euro". That replacement will occur
on January 1, 1999. To address the Euro issue, the Company has
assembled a team of technology and finance professionals to review
its applications and programs that use European currency data. As
of October 31, 1998 the Company had released EMU-compatible
versions of its principal equity analytics product, expected to
release EMU-compatible versions of its global fixed income product
by early December 1998 and expected to release the remainder of
the products that will be altered by the end of December 1998.
Expenses related to the Euro issue are expected to total
approximately $.5 million, substantially all of which relate to
internal labor costs incurred during the quarter ended September
30, 1998. The Company's expectations for future costs associated
with and timely resolution of all Euro issues are subject to
uncertainties that could cause actual results to differ materially
from the projections set forth above. Factors that could
influence the amount and timing of such costs include: the success
and timeliness of the Company in identifying products,
applications and internal software containing European currency
data, the nature and amount of programming and research required
to upgrade or replace each of the affected products and programs,
the rate and magnitude of related labor and consulting costs, and
the success of the Company's external vendors and service
providers in addressing the Euro issue.
Foreign Currency and Business in Asia
BARRA, as an international corporation, generates revenues from
clients throughout the world, maintains sales and representative
offices worldwide and holds certain deposits and accounts in
foreign currencies. BARRA's revenues are generated from both
United States and non-U.S. currencies. BARRA's subscriptions in
the United Kingdom and the European Community are priced in
British pounds sterling ("pounds") and European Currency Units
("ECUs"), respectively. Additionally, BARRA's consolidated
subsidiary, BARRA International (Japan), Ltd. ("BARRA Japan"),
generates revenues, has expenses and has assets and liabilities in
Japanese yen.
The Company has customers and three sales and client support
offices in Asia. For the three and six months ended September 30,
1998, revenues from Asia totaled approximately $4.1 million and
$7.9 million ($2.9 million and $5.8 million in Japan),
respectively, or approximately 10% of total revenues. Excluding
Japan, the Company bills its customers in Asia in US dollars and
has nominal expenses in local currencies. Recent volatility in
Asian capital markets has negatively impacted yen denominated
revenues and could adversely impact future subscription renewals
and related revenues for customers throughout Asia.
All other things being equal, weakening of the U.S. dollar has a
positive impact on profits, and strengthening of the U.S. dollar
has a negative impact. The Company has considered its exposures
to foreign currency fluctuations and to this point has decided not
to engage in hedging or managing exposures to foreign currency
fluctuations through contracts for the purchase, sale or swapping
of currencies. Accordingly, a strengthening of the U.S. dollar
versus non-U.S. currencies could have a material adverse impact on
the Company's results of operations and financial condition.
For the three month period ended September 30, 1998, when compared
to the same period a year ago, the U.S. dollar strengthened
significantly against the yen and was relatively unchanged against
the pound and ECU - all of which had the net effect of reducing
net revenues and net income by approximately $618,000 and
$120,000, respectively, compared to exchange rates in effect for
the three month period ended September 30, 1997.
Because the functional currency of BARRA Japan is the yen, the
translation gains and losses associated with the consolidation of
its balance sheets at points in time are reported as part of
stockholders' equity.
Under current operating arrangements in the countries in which
BARRA does business, there are no restrictions upon the flow of
funds from BARRA's foreign subsidiaries to the parent company.
B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The dollar and percentage increases or decreases set forth below
in this discussion and analysis of BARRA's consolidated financial
condition result from a comparison of BARRA's balance sheet at
September 30, 1998 (unaudited) to the balance sheet at March 31,
1998. All amounts have been rounded to the nearest $1,000.
Financial Condition
Total assets increased $8,089,000 or 7%.
Total current assets increased $1,451,000 or 2%. This net increase
consists primarily of decreased cash and equivalents as a result
of investing activities and the payment of annual bonuses which
occurred in May 1998 offset by increases in trade and other
receivables associated with increases in sales and asset
management fees - see the accompanying unaudited condensed
consolidated statement of cash flows for more information.
Premises and equipment increased $4,425,000 or 16%. This increase
reflects computer and other communication equipment purchases
associated with ongoing internal network upgrade projects, growth
in headcount, and purchases related to the Company's Y2K Project.
In addition, the Company undertook office relocation or expansions
in London, New York and Berkeley during the past six months.
Goodwill and other intangibles increased $4,169,000, net of
related amortization, as a result of the Redpoint purchase
discussed in Note 2 to the accompanying condensed consolidated
financial statements.
Total current liabilities decreased $2,919,000. This decrease
primarily reflects growth in BARRA product subscriptions offset by
a decrease in accrued compensation as a result of the payment of
annual bonuses to employees in May 1998.
Minority interest in equity of subsidiary represents minority
equity interests in the net assets of Bond Express and Symphony
LLC.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and investment
in municipal debt securities available-for-sale totaled
$38,768,000 at September 30, 1998. In addition, the Company has a
commitment from a bank for an unsecured short-term line of credit
of up to $5 million - of which, no amounts have been, or are
presently anticipated to be, drawn down.
BARRA believes that its cash flow from operations (including
prepaid subscription fees), together with existing cash balances,
will be sufficient to meet its cash requirements for capital
expenditures and other cash needs for ongoing business operations.
Other than commitments described in this discussion and analysis
and in the financial statements and notes, the Company has no
present binding understandings or commitments with respect to any
significant expenditures.
Principal Financial Commitments. The Company's principal
financial commitments consist of obligations under operating
leases and contracts for the use of computer and office
facilities.
C. RESULTS OF OPERATIONS
References to the dollar and percentage increases or decreases set
forth below in this discussion and analysis of BARRA's results of
operations are derived from comparisons of BARRA's consolidated
statements of operations for the three and six month periods ended
September 30, 1998 and September 30, 1997. All amounts, except per
share amounts, have been rounded to the nearest $1,000.
Net Income (Loss). Net income for the three month period ended
September 30, 1998 was $4,676,000 or $0.32 per share (diluted),
compared to net income of $3,673,000 or $0.25 per share (diluted)
for the same quarter a year ago. Net income for the six month
period ended September 30, 1998 was $9,203,000 compared to a net
loss of $2,589,000 for the same period a year ago. Results for the
six month period ended September 30, 1997 included a one-time
acquisition charge of $9,914,000 ($.74 per share) related the
write-off of in-process research and development in connection
with the acquisition of Global Advanced Technology Corporation
("GAT").
Operating Revenues. Total operating revenues increased $7,792,000
or 25% over the same quarter a year ago and $16,599,000 or 28%
compared to the same six month period a year ago. Operating
revenues from GAT (acquired on June 17, 1997) and the TED and
Directus assets (acquired on October 9, 1997) contributed $719,000
and $3,521,000 of the increase in total revenues for three and six
months ended September 30, 1998, respectively, when compared to
the same periods a year ago.
Subscription and Consulting fees consist of annual subscription
fees for BARRA's software and investment data products, revenues
from other sources related to the institutional analytics business
and consulting services to pension plan sponsors and investment
managers. A summary of the components and related changes is as
follows (amounts in $000's):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 %Change 1998 1997 %Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Analytics and data
subscriptions.......... $21,502 $17,681 22 $42,280 $32,913 28
Other analytics related.. 1,481 1,262 17 3,033 2,540 19
Consulting............... 5,255 4,748 11 9715 9,356 4
-------- -------- -------- -------- -------- --------
TOTAL.................... $28,238 $23,691 19 $55,028 $44,809 23
======== ======== ======== ======== ======== ========
</TABLE>
Analytics and Data Subscriptions are for BARRA's software and
investment data products and related updates. The Company
generally bills and collects fees on an annual basis, but
recognizes the income 1/12th per month over each year of the
subscription period. Analytics and data subscriptions from GAT,
TED and Directus accounted for $1,113,000 and $3,667,000 of the
increase in analytics and data subscription revenue for the three
and six months ended September 30, 1998, respectively, when
compared to the same periods a year ago. The growth in annual
subscription fees continues to be generated from a combination of
obtaining new clients, increasing revenues from existing customers
through the introduction of new products and services, and
acquisitions.
Revenue growth primarily came from equity models and related data
reflecting the continued success of the BARRA Aegis System Tm.
Various new single country and global versions of this equity
analytics system have been introduced continuously since July
1995. Sales of the international versions of the fixed income
products also contributed as a result of sales of the BARRA COSMOS
System Tm. Increases in subscription revenues continue to come most
significantly from net increases in the number of subscriptions
and less significantly from changes in the prices of
subscriptions.
Revenues from other sources related to the institutional analytics
business include timesharing revenues, seminar revenues and other
recurring fees. Fluctuations in these revenue sources result
primarily from the timing of seminars and the amount of
timesharing billed to clients.
Consulting Fees consist of services to pension plan sponsors
("Sponsor Services") which are usually recurring retainer-based
fee arrangements; and consulting to money managers, banks and
insurance companies ("Strategic and Risk Services"), which are
usually non-recurring, project engagements that are completed in
phases. Also included in Strategic and Risk Services revenues are
fees related to consulting work done in connection with strategic
transactions involving clients. Accordingly, Strategic and Risk
Services revenues are susceptible to a large degree of variability
depending on the ability to source new projects and the
unpredictable nature and significance of fees associated with
strategic transactions. Revenues from consulting services
increased over the same three and six month periods a year ago as
a result of significant growth in enterprise wide risk project
revenue and modest growth from sponsor consulting.
Electronic Brokerage revenues consist of license fees from
Portfolio System for Institutional Trading ("POSIT"), which
increased $2,150,000 or 91% compared to the same quarter a year
ago and $3,337,000 or 67% compared to the same six month period a
year ago. BARRA's revenues from POSIT are derived from commissions
generated by the trading volume in the system. POSIT revenue
increases reflect record trading volumes during the quarter. POSIT
crossed a record breaking average of 26.9 million shares per day
for the September 1998 quarter and has crossed approximately 4.3
billion shares to date this calendar year.
Asset Management revenues increased $1,095,000 or 21% compared to
the same quarter a year ago and $3,043,000 or 35% compared to the
same six month period a year ago. Asset management revenues
consist of fees generated from active management of investor
accounts by Symphony LLC and fees earned by BARRA RogersCasey
Asset Services Group from management of customized multi-manager
programs.
Symphony LLC's revenues consist primarily of asset management fees
which are a fixed percentage of asset value and performance fees
that are based on the performance over a benchmark for each
account. Symphony's total revenues were $6,005,000 for the
current quarter and $10,888,000 for the current year-to-date
period compared to $4,788,000 and $7,787,000 for the same periods
a year ago. This increase in total revenues was the result of
increases in both base and performance fees due to growth in
assets under management. As of September 30, 1998, Symphony had
approximately $2.3 billion under direct management. Of the funds
under direct management, approximately $1.6 billion are managed
under agreements that provide for performance fees in addition to
a base management fee.
Performance fees included in total revenues were $2,315,000 for
the current quarter and $3,699,000 for the current year-to-date
period compared to $1,834,000 and $2,212,000 for the same periods
a year ago. Performance fees are recognized only at the
measurement date for determining performance of an account, which
typically is at the end of each year of the contract. Symphony
performance fees for the September, 1998 quarter were for accounts
representing approximately 23% of the current total of assets
subject to performance fees and included fees for some accounts
that has partial year performance periods. The increase in
performance fee revenues for the quarter and year-to-date periods
over the same periods a year ago is the result of an increase in
the number and value of investor account anniversaries. Assets
under management subject to performance fees have increased
approximately $600 million or 38% from September 30, 1997. The
pattern of anniversaries can change from quarter to quarter
because of the addition, termination and re-negotiation of account
agreements. There is also, of course, no assurance that the
investment performance will continue at historical levels. It is
presently estimated that approximately 66% and 3% of the
performance-based funds under management will have performance fee
determination dates in the quarters ended December 31, 1998 and
March 31, 1999, respectively.
Symphony's future revenues will depend on levels of assets under
management, the performance of the funds it manages and the timing
of anniversary fee determination dates for performance based
funds.
Operating Expenses. For the quarter ended September 30, 1998
compared to the same quarter a year ago, total operating expenses
increased $5,240,000 or 22% including the impact of acquired
business since June, 1997. For the six month period ended
September 30, 1998 compared to the same period a year ago, total
operating expenses, including one-time acquisition charges,
increased $2,229,000 or 4%. Excluding one-time acquisition
charges, operating expenses increased $12,143,000 or 27%.
Cost of Subscription Products consists of computer access charges,
data and software acquisition expenses, BARRA's computer leasing
expenses, and seminar expenses. This component of expense
increased $717,000 or 45% compared to the same quarter a year ago
and $1,633,000 or 49% compared to the same six month period a year
ago. Including the impact of acquired operations, cost of
subscription products increased compared to the same periods a
year ago as a result of higher software amortization, data costs
associated with expanding product lines and acquired products, and
higher seminar expenses principally as a result of seminar timing.
Compensation and Benefits increased $3,806,000 or 25% compared to
the same quarter a year ago and increased $7,596,000 or 27%
compared to the same six month period a year ago. Including
compensation and benefit costs from business acquired, the
increases from the same periods a year ago are primarily the
result of annual salary adjustments that take effect on July 1
each fiscal year, increases in incentive compensation including
the effect of changes in the pattern of accrual during each year,
a modest increase in total average headcount (excluding the effect
of acquired employees), increases in consultant costs associated
with Year 2000 and other projects, and increases in other related
employee benefit costs associated with more employees and general
cost increases.
Rent Expense increased $465,000 or 33% compared to the same
quarter a year ago and increased $1,072,000 or 42% compared to the
same six month period a year ago. The increase for both period
comparisons reflects costs from acquired operations plus new or
expanded office space in London, New York, San Francisco, Berkeley
and Darien.
Other Operating Expenses increased $253,000 or 4% compared to the
same quarter a year ago and $1,842,000 or 17% compared to the same
six month period a year ago. Other operating expenses include
travel, office, maintenance, depreciation, amortization, data and
other expenses related to asset management operations, marketing,
advertising, outside legal and accounting services, foreign
currency translation gains and losses, and other corporate
expenses. Including expenses from acquired operations, other
operating expenses increased as a result of increases in
advertising and marketing, printing costs, travel and
entertainment, computer and communication costs and various other
operating costs associated with business growth. In addition,
other operating expenses for the three months ended September 30,
1998 were favorably impacted by lower losses on foreign exchange
currency translation compared to the same quarter a year ago.
Interest Income and Other decreased over the same quarter and same
six month periods a year ago as a result of lower recorded gains
on short-term investments, lower interest bearing note receivable
balances and lower invested cash balances.
Minority Interest primarily represents the share of profits from
Symphony Asset Management LLC that is due to the principals.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Investment Portfolio
The Company does not use derivative financial instruments in its
investment portfolio. The Company's investment portfolio
primarily consists of investments in: a) short-term, high-credit
quality money market funds - amounting to approximately $21.2
million at September 30, 1998; b) short-term, high credit quality
municipal debt securities - amounting to approximately $6.4
million at September 30, 1998; and c) market-neutral investment
programs managed by two of the Company's subsidiaries - amounting
to approximately $11.2 million at September 30, 1998. The short-
term money market funds and the municipal debt securities are not
insured and because of the short-term nature of the investments
are subject to credit risk, but are not likely to fluctuate
significantly in market value.
The Company's investments in market-neutral programs consist
principally of long and short positions placed directly (in the
case of funds managed by Symphony LLC) or indirectly (in the case
of funds managed by BARRA RogersCasey Asset Services Group)
through other fund managers in U.S and non-U.S. equity securities
of both public and private issuers. Although the intent of the
managers of these funds is to structure portfolios that are hedged
against general market movements, these investments can be subject
to significant changes in market value and are not insured. All
investment decisions with respect to these market neutral programs
are made by the Company's professional investment advisers and the
performance of the funds is reviewed periodically by management
and the Company's Board of Directors.
Impact of Foreign Currency Rate Changes
The Company invoices customers in Europe in both British Pound
Sterling and European Currency Units. In Japan, the Company bills
its customers in Japanese Yen. Excluding customers in these
locations, the Company generally bills for its services in U.S.
dollars. BARRA has not engaged in foreign currency hedging
activities. To the extent of its local currency (Yen, Pound and
ECU) invoicing, its international revenues are subject to currency
exchange fluctuation risk. To the extent that international
revenues that are invoiced in local currencies increase in the
future, the Company's exposure to fluctuations in currency
exchange rates will correspondingly increase. Currency
fluctuations may also effectively increase the cost of BARRA's
products and services in countries in which customers are invoiced
in U.S. dollars. See also Part I, Item 2, "Foreign Currency and
Business in Asia" for a description of the impact of changes in
foreign currency exchange rates during the quarter ended September
30, 1998.
The Company has no foreign debt and non-U.S. dollar cash balances
held overseas are generally kept at levels necessary to meet
current operating and capitalization needs.
<PAGE>
PART II - OTHER INFORMATION
Each statement made in this Part II containing any future verb
tense or any form of the words "anticipate", "estimate",
"expect", "designed", "believe," "future", "forecasts",
"intends", "perceives", "possible", "potential",
"targeted", "may", "plan or "plans", "scheduled",
"would", "could", "should", or "forward" or similar
expression is a forward-looking statement that may involve a
number of risk factors and uncertainties. The Company does not
undertake to update, revise or correct any of the forward-looking
information. A discussion of those risk factors is located in the
first paragraph of Part I, Item 2, throughout this Form 10-Q and
in the Company's Form 10-K for the fiscal year ended March 31,
1998.
Item 1. Legal Proceedings.
All information required by this item has been previously reported
under the heading "Legal Proceedings" in the Form 10-K. There have
been no other material developments in the legal proceedings of BARRA
since the date of the Form 10-K.
Item 2. Changes in Securities and Use of Proceeds.
All information required by this item has been previously reported
under Part II, Item 2 in the Company's June 30, 1998 Form 10-Q. There
have been no other changes in securities and use of proceeds since the
date of the June 30, 1998 Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders.
All information required by this item has been previously reported
under Part II, Item 4 in the Company's June 30, 1998 Form 10-Q. There
have been no other submission of matters to a vote of the security
holders of BARRA since the date of the June 30, 1998 Form 10-Q.
Item 5. Other Information.
On September 2, 1998, the Company repurchased in two transactions
10,000 shares of its own Common Stock at an aggregate price of $188,750
and 8,000 shares of its own Common Stock at an aggregate price of
$156,500.
On September 3, 1998, the Company repurchased 6,800 shares of its own
Common Stock at an aggregate price of $128,350.
On September 8, 1998, the Company repurchased 2,800 shares of its own
Common Stock at an aggregate price of $52,850.
At its October 23, 1998 quarterly meeting, the Board of Directors of
the Company authorized BARRA's officers to use up to $4,000,000 to
purchase additional shares of the Company's Common Stock on The Nasdaq
Stock Market.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are required by Item 601 of the Regulation
S-K:
Exhibit
Number Exhibit Description
27 Financial Data Schedule
(electronic filing only)
(b) Reports on Form 8-K:
Current Report on Form 8-K filed August 14, 1998 regarding the
change of the Company's state of incorporation from the State of
California to the State of Delaware and attaching as an exhibit
thereto the Agreement and Plan of Merger of BARRA (DE), Inc. (a
Delaware corporation) and BARRA, Inc. (a California corporation)
executed in connection therewith, and reporting the approval by
the Company's shareholders of an increase in the Company's
authorized number of shares of Common Stock from 40,000,000 to
75,000,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
BARRA has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRA, Inc.
(Registrant)
Date: November 13, 1998 /s/ Andrew Rudd
Andrew Rudd, Chairman of the
Board of Directors and Chief
Executive Officer
Date: November 13, 1998 /s/ James D. Kirsner
James D. Kirsner, Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
27 Financial Data Schedule
(electronic filing only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 17,058,650
<SECURITIES> 21,709,499
<RECEIVABLES> 35,707,997
<ALLOWANCES> 152,733
<INVENTORY> 0
<CURRENT-ASSETS> 76,106,259
<PP&E> 32,557,106
<DEPRECIATION> 15,898,494
<TOTAL-ASSETS> 129,549,432
<CURRENT-LIABILITIES> 44,303,173
<BONDS> 0
0
0
<COMMON> 1,388
<OTHER-SE> 81,235,591
<TOTAL-LIABILITY-AND-EQUITY> 129,549,432
<SALES> 74,939,762
<TOTAL-REVENUES> 74,939,762
<CGS> 4,959,130
<TOTAL-COSTS> 52,019,375
<OTHER-EXPENSES> 3,677,910 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (802,676)<F2>
<INCOME-PRETAX> 15,086,023
<INCOME-TAX> 5,883,235
<INCOME-CONTINUING> 9,202,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,202,788
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.63
<FN>
<F1>MINORITY INTEREST SHARE OF NET INCOME AND LOSS ON EQUITY JOINT VENTURES
<F2>REPRESENTS NET INTEREST INCOME
</FN>
</TABLE>
